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Burlingame Bank and the ABC Manufacturing Corp. enter into the following 7-year swap with a notional...

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Finance

Burlingame Bank and the ABC Manufacturing Corp. enter into thefollowing 7-year swap with a notional amount of $75 million and thefollowing terms: Every year for the next seven years, BurlingameBank agrees to pay ABC Manufacturing 7% per year and receive fromABC Manufacturing LIBOR.

a. What type of swap is this?

b. In the first year payments are to be exchanged, suppose thatLIBOR is 4%. What is the amount of the payment that the two partiesmust make to each other?

Answer & Explanation Solved by verified expert
4.2 Ratings (489 Votes)
a This is an Interest Rate Swap where Burlingame Bank is a paying fixed interest rate of 7 per year to ABC Manufacturing and receive LIBOR which is a    See Answer
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Burlingame Bank and the ABC Manufacturing Corp. enter into thefollowing 7-year swap with a notional amount of $75 million and thefollowing terms: Every year for the next seven years, BurlingameBank agrees to pay ABC Manufacturing 7% per year and receive fromABC Manufacturing LIBOR.a. What type of swap is this?b. In the first year payments are to be exchanged, suppose thatLIBOR is 4%. What is the amount of the payment that the two partiesmust make to each other?

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